Effective Jan. 1, 2010, only businesses with a Department of Revenue-issued Reseller Permit can purchase items for resale without paying sales tax.
Before this change, any business or individual can obtain a resale certificate from the Department's website, present that certificate at the point of sale, and avoid paying retail sales tax on the value of the goods purchased. Apparently, this very loose system has been costly for the State. According to the news release announcing the change, all kinds of abuses have been happening.
"Examples of misuse of the self-issued resale certificates include a dentist buying a big screen TV for office or home use, a nonprofit corporation purchasing office equipment for its own use, and a janitorial firm buying cleaning supplies used in its business. Sales tax is due on all of these purchases because the materials aren’t being resold."
This change is the result of legislation passed in September of 2009 and effective January, 2010. The legislature is trying to curb these abuses. The switch from the current resale certificate program is projected to recover up to $100 million annually in state and local sales tax revenue that is now lost when businesses buy items for their own use but don’t pay sales tax when due.
Or, you may be one of those businesses that automatically qualifies for the permit and will have it sent to you with no further action necessary on your part. The Department estimates that 30 percent of registered businesses in this state qualify for and will receive the new reseller permit.
Businesses that do not report retail or wholesale sales generally will not be eligible for permits.
According to the news release, more than 155,000 businesses were mailed permits automatically back in October, 2009. Another 330,000 were advised that they would not be sent a permit but could apply for one if they could demonstrate a legitimate business need.
It's obvious that the Department feels like contractors are the biggest abusers of the old resale certificate system. As a result, they are making it difficult for contractors to obtain these new Reseller Permits. They certainly don't get any automatic permits although they may have been notified that they might qualify for permits depending on the nature of their work and to apply if they want one. Even if contractors get a Reseller Permit, it's only valid for 12 months. They have to reapply every other year. Other types of businesses generally only have to reapply every 4 years.
According to Department estimates, about 326,000 registered non-reporters, who don’t file tax returns and don’t collect sales tax, will not qualify for permits.
After Dec. 31, 2009, businesses that do not have a reseller permit will need to pay sales tax on products they purchase to resell, but can claim a deduction for sales tax paid at source on their state excise tax returns or seek a refund if you do resell them.
Follow this link to the State's website for much more information on this new permit. And of course, if you have any questions on this matter, do feel free to call and discuss it with us.
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